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Switching jobs could bring pension risk

24 January 2008 / by None

New proposals by the government could mean that workers changing jobs could see substantial cuts to their pension scheme.

The proposals will mean schemes will only have to grant inflation increase of up to 2.5 per cent and could mean employees leaving a company find their pensions do not keep up with inflation after the move, the Telegraph reports.

If inflation was to rise by five per cent it is thought that pension benefits could suffer by up to 38 per cent over a 20 year period, the report continues.

Minister for pension reform, Mike O'Brien argues that the change is necessary as schemes could be in danger of closing down in the future as employers find it difficult to meet the high cost of final salary pension schemes.

He says: "Increasing longevity has made defined-benefit schemes progressively expensive, and we want employers to continue to provide good pensions. This is a complex issue and there is no single magic bullet solution, but deregulating by reducing the cap on the revaluation of deferred pensions will help."

Gordon Brown recently agreed to take a cut in his own pension to set an example in light of new pension plans proposed for future prime ministers, reports Reuters.